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How Charitable Donations Through an IRA Can Impact Taxes and Investing … Are You Familiar with These Tax Changes Toward Charitable Donations?

Changes in determining who will include itemized deductions on their tax returns will affect millions this tax year. The Tax Cut and Jobs Act of 2017 is expected to drastically reduce the number of people enjoying tax savings related to their charitable donations, with only 16 million in 2018 versus 37 million in 2017. The updates impact taxes and investing for many Americans.

The itemized tax deduction will be limited to $10,000 for state and local taxes and the standard deduction will go up, with single returns at $12,000 and those married filing joint returns receiving a $24,000 standard deduction. Head of household returns will have a standardized deduction of $18,000. The thresholds are higher for those over the age of 65.

The percentage of households that report itemized deductions on their tax returns is expected to drop 39% with only 15% itemizing.

The good news for seniors: While this news may make it seem that the benefits of contributing to charity will be drastically changed, and both taxes and investing will require some changes in order to absorb the impact, there is good news for seniors. The new law does not change the ability to make a charitable contribution from an individual retirement account (IRA) without recognizing taxable income.

In the past, the ability to include charitable donations on itemized deductions meant that many people over the age of 70 ½ never took advantage of this ability. With the new changes in place, everyone who meets the minimum age requirement might consider changing the way they make their charitable contributions. (Essentially, individuals over the age of 70 ½ with IRAs could leverage some tax savings while giving to a philanthropy).

How it works: The law is generally referred to as a “charitable IRA rollover,” and it allows seniors to make donations to eligible charities directly from their IRA, excluding the donations from their gross income.

For younger taxpayers: If an investor is under the age of 70 ½, they may still be able to capture some of the benefits of their charitable donations by “bunching” their contributions. Instead of making a donation of $5,000 each year for three years, they could give $15,000 once every three years, allowing them to itemize on that tax return. This method can be a bit challenging for the charity in question because of budgeting and planning, but there are options like a private foundation or donor-advised fund that can manage the donation flow to the charity.

To learn more about how recent laws have impacted investment strategies, contact us at Lawson Kroeker Investment Management. We can help guide you.

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“It’s different here because you’re talking to the person who is selecting what you’re investing in. It’s a different set up than other firms. Here in our mutual fund, we know who our people are, and we are the ones making the decisions.” – Tom Sudyka, Portfolio Manager

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“The firm is the right size to be closer with clients and offers well-considered investment advice. We can help clients achieve their goals and objectives because decisions are made in-house from our own team.”– Patrick Riordan, Director of Client Relations and Business Development

Our Story

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Your Success

“If the client has a smile on their face and if we’re helping them meet their goals …That’s the kind of competitiveness that drives all of us to win … For the client, not for an ad on TV.” – Tom Sudyka, Portfolio Manager

Long-Term

“I know first-hand the ideas the founders built the business upon – including a straightforward focus on long-term success.” – Edie Basch, Client Services Administrator/Operations

Good Advice

“We always told our clients and prospects that we planned on this being a permanent firm and others would come after us. They can count on the firm being around and consistent and staying the same. We keep it this way to preserve the philosophy, the approach and the culture.” – Ken Kroeker, Founder

What Matters Most

“This work can be fun. You do what you enjoy and there’s a service-minded philosophy. We look at several options together as a group and see what makes sense.” – Tom Sudyka, Portfolio Manager

Investment

“While there have certainly been changes in how investment management is handled, the path to success still looks a lot like it did in our beginnings. It’s consistent, focused and carefully considered.” –Bruce Van Kooten, Portfolio Manager

A better way

“It’s different here because you’re talking to the person who is selecting what you’re investing in. It’s a different set up than other firms. Here in our mutual fund, we know who our people are, and we are the ones making the decisions.” – Tom Sudyka, Portfolio Manager

Low-Pressure

“The firm is the right size to be closer with clients and offers well-considered investment advice. We can help clients achieve their goals and objectives because decisions are made in-house from our own team.”– Patrick Riordan, Director of Client Relations and Business Development

Our Story

“Being a smaller firm allows advisors to think much more long-term and to be patient for things to develop instead of rushing in. It creates an opportunity to gain clients’ trust and faith — and then it allows us the opportunity to actually carry those plans forward.” – Chad Clauser, Portfolio Manager

Your Success

“If the client has a smile on their face and if we’re helping them meet their goals …That’s the kind of competitiveness that drives all of us to win … For the client, not for an ad on TV.” – Tom Sudyka, Portfolio Manager

Long-Term

“I know first-hand the ideas the founders built the business upon – including a straightforward focus on long-term success.” – Edie Basch, Client Services Administrator/Operations

Good Advice

“We always told our clients and prospects that we planned on this being a permanent firm and others would come after us. They can count on the firm being around and consistent and staying the same. We keep it this way to preserve the philosophy, the approach and the culture.” – Ken Kroeker, Founder

What Matters Most

“This work can be fun. You do what you enjoy and there’s a service-minded philosophy. We look at several options together as a group and see what makes sense.” – Tom Sudyka, Portfolio Manager

Investment

“While there have certainly been changes in how investment management is handled, the path to success still looks a lot like it did in our beginnings. It’s consistent, focused and carefully considered.” –Bruce Van Kooten, Portfolio Manager